XML 41 R27.htm IDEA: XBRL DOCUMENT v3.22.0.1
FAIR VALUE MEASUREMENTS
 12 Months Ended
Dec. 31, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
Note 18 – Fair Value Measurements

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a
particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Assets Measured on a Recurring Basis

As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We classified investments in government securities as Level II instruments and valued them using the market approach. The following measurements are made on a recurring basis.

Available-for-sale investment securities — Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock Exchange and money market funds. Level II securities include mortgage-backed securities issued by government sponsored entities and private label entities, municipal bonds, United States Treasury securities that are traded by dealers or brokers in inactive over-the-counter markets and corporate debt securities. There have been no changes in valuation techniques for the year ended December 31, 2021. Valuation techniques are consistent with techniques used in prior periods. Certain local municipal securities related to tax increment financing (“TIF”) are independently valued and classified as Level III instruments. We classified investments in government securities as Level II instruments and valued them using the market approach.

Equity securities — Certain equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include significant unobservable inputs. There have been no changes in valuation techniques for the year ended December 31, 2021. Valuation techniques are consistent with techniques used in prior periods.

Loans held-for-sale — The fair value of mortgage loans held-for-sale is determined, when possible, using quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants.

Interest rate swap — Interest rate swaps are recorded at fair value based on third-party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.

Fair value hedge — Treated like an interest rate swap, fair value hedges are recorded at fair value based on third-party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.
The following tables present the assets reported on the consolidated statements of financial condition at their fair value on a recurring basis as of December 31, 2021 and 2020 by level within the fair value hierarchy:
 December 31, 2021
(Dollars in thousands)Level ILevel IILevel IIITotal
Assets:
     United States government agency securities$— $40,437 $— $40,437 
     United States sponsored mortgage-backed securities— 76,108 — 76,108 
     United States treasury securities— 110,389 — 110,389 
     Municipal securities— 133,249 41,763 175,012 
     Corporate debt securities— 11,142 — 11,142 
     Other debt securities— 7,500 — 7,500 
     Other securities— 878 — 878 
     Equity securities247 — — 247 
     Interest rate swap— 6,702 — 6,702 
     Fair value hedge— 1,552 — 1,552 
     Bank-owned life insurance— 42,257 — 42,257 
Liabilities:
     Interest rate swap— 6,702 — 6,702 
Fair value hedge— 807 — 807 
 December 31, 2020
(Dollars in thousands)Level ILevel IILevel IIITotal
Assets:
     United States government agency securities$— $56,992 $— $56,992 
     United States sponsored mortgage-backed securities— 95,769 — 95,769 
     United States treasury securities— 3,123 — 3,123 
     Municipal securities— 188,208 43,679 231,887 
     Corporate debt securities— 17,548 — 17,548 
     Other securities— 18,476 — 18,476 
     Equity securities472 — — 472 
     Loans held-for-sale— 1,062 — 1,062 
Interest rate swap— 13,822 — 13,822 
     Fair value hedge— 2,215 — 2,215 
Liabilities:
     Interest rate swap— 13,822 — 13,822 
     Fair value hedge— 2,141 — 2,141 
The following table represents recurring Level III assets:
(Dollars in thousands)Interest Rate Lock CommitmentsMunicipal SecuritiesTotal
Balance at December 31, 2020$— $43,679 $43,679 
Purchase of securities— 3,862 3,862 
Maturities/calls— (5,214)(5,214)
Unrealized gain (loss) included in other comprehensive income— (564)(564)
Balance at December 31, 2021$— $41,763 $41,763 
Balance at December 31, 2019$1,660 $37,259 $38,919 
Realized and unrealized income (loss) included in earnings(1,660)3 (1,657)
Purchase of securities— 22,228 22,228 
Maturities/calls— (15,778)(15,778)
Unrealized gain (loss) included in other comprehensive income— (33)(33)
Balance at December 31, 2020$— $43,679 $43,679 

Assets Measured on a Nonrecurring Basis

We may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a nonrecurring basis during 2021 and 2020 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other noninterest expense.

Impaired loans — Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, we obtain a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

Other real estate owned — Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. At the time the foreclosure is completed, we obtain a current external appraisal.

Other debt securities — Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities, which include preferred member interest in an equity method investment, are securities without a readily determinable fair value and are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

Equity securities — Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.
Assets measured at fair value on a nonrecurring basis as of December 31, 2021 and 2020 are included in the table below:
December 31, 2021
(Dollars in thousands)Level ILevel IILevel IIITotal
Impaired loans$— $— $21,980 $21,980 
Other real estate owned— — 2,330 2,330 
Other debt securities— — 7,500 7,500 
Equity securities— — 32,155 32,155 
December 31, 2020
(Dollars in thousands)Level ILevel IILevel IIITotal
Impaired loans$— $— $14,098 $14,098 
Other real estate owned— — 5,730 5,730 
Other debt securities— — 7,500 7,500 
Equity securities— — 27,113 27,113 
The following tables presents quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value at December 31, 2021 and 2020:
 Quantitative Information about Level III Fair Value Measurements
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable Input Range
December 31, 2021
Nonrecurring measurements:
Impaired loans$21,980 
Appraisal of collateral 1
Appraisal adjustments 2
10% - 20%
   
Liquidation expense 2
5% - 10%
Other real estate owned$2,330 
Appraisal of collateral 1
Appraisal adjustments 2
10% - 20%
   
Liquidation expense 2
5% - 10%
Other debt securities$7,500 Net asset valueCost minus impairment—%
Equity securities$32,155 Net asset valueCost minus impairment—%
Recurring measurements:
Municipal securities 5
$41,763 
Appraisal of bond 3
Bond appraisal adjustment 4
1% - 20%
 Quantitative Information about Level III Fair Value Measurements
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable Input Range
December 31, 2020
Nonrecurring measurements:
Impaired loans$14,098 
Appraisal of collateral 1
Appraisal adjustments 2
20% - 62%
   
Liquidation expense 2
5% - 10%
Other real estate owned$5,730 
Appraisal of collateral 1
Appraisal adjustments 2
20% - 30%
   
Liquidation expense 2
5% - 10%
Other debt securities$7,500 Net asset valueCost minus impairment—%
Equity securities$27,113 Net asset valueCost minus impairment—%
Recurring measurements:
Municipal securities 5
$43,679 
Appraisal of bond 3
Bond appraisal adjustment 4
5% - 15%
1 Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs which are not identifiable.
2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted-average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
3 Fair value determined through independent analysis of liquidity, rating, yield and duration.
4 Appraisals may be adjusted for qualitative factors, such as local economic conditions, liquidity, marketability and legal structure.
5 Municipal securities classified as Level III instruments are comprised of TIF bonds related to certain local municipal securities.